China's growing
presence in South Asia rides on its accelerated
economic and strategic influence in the region.
This article gauges the interplay between
economic, particularly resource factors, and
strategic factors in China's advance in the region
and its relations with South Asian nations.

One measure of China's economic outreach
is its current trade volume with all South Asian
nations, which now approaches $20 billion a year.
[1] Its bilateral trade with India alone accounts
for $13.6 billion a year, a number that Chinese
Prime Minister Wen Jiabao has projected to grow to
$30 billion by 2010. [2] Yet it constitutes just
1% of China's global trade as compared to 9% of
India's. [3]

These
statistics pale in comparison with trade between
China and East Asian nations. China's trade with
Japan, which was valued at $213 billion in 2004,
[4] is more than 15 times that between Beijing and
Delhi. In 2004, China passed the United States as
Japan's largest trading partner. What is
remarkable about Sino-Indian trade, however, is
its dramatic acceleration to $13.6 billion in 2004
from $338 million in 1992. [5] The projected $30
billion trade between China and India by 2010 will
likely surpass Indo-US trade that is currently
valued at $20 billion a year.

Sino-Indian
trade links are gathering strength from India's
computer software industry. Wen attested to this
strength when he began his April 9-12 visit to
India with a stop in Bangalore, the Indian Silicon
Valley. China, which excels in production of
computer hardware but lags in computer software,
is sending students to India for education and
training in software engineering. Similarly, it
has opened its doors to Indian software companies.
Yet the software industry only accounts for a
fraction of the two-way trade between Beijing and
Delhi. Even Indian software giants such as Tata
Consultancy Services that have opened branches in
China are largely dependent on multinationals. [6]
"Only a small proportion of its work there is for
Chinese customers." [7]

As a matter of
fact, India's exports to China are predominantly
raw and processed materials, especially steel.
Many skeptics among Indians believe that India's
inflated exports will drop when China's
construction boom ends. On the other hand, some
fear that cheaply produced Chinese imports will
eventually hurt India's domestic industrial base.
[8]

Except for Delhi, Beijing runs trade
surpluses with all other partners in the region,
including Bangladesh, Nepal, Pakistan and Sri
Lanka. But China makes up for its trading edge
with massive investment in these countries'
infrastructural development, socio-economic needs
and above all energy production projects. Of all
these areas, investment in energy production has
touched off the stiffest competition both inside
and outside the region. A case in point is the
recent US offer of nuclear power plants to India.
China quickly followed up with a competitive offer
of its own nuclear power plants to Pakistan and
Bangladesh to meet the latter's energy needs.
Beijing also showers these nations with low-cost
financial capital to help their struggling
development sector. The largest beneficiaries of
Chinese economic aid are Pakistan, Bangladesh, Sri
Lanka and Nepal –in that order –emblematic of
China's growing scale and diversification of
economic presence throughout the region.

China's growing strategic
influenceChina has
simultaneously deepened its strategic influence in
the region, notably with India's immediate
neighbors – Bangladesh, Nepal, Pakistan and Sri
Lanka. Beijing has long had a close strategic
partnership with Islamabad, but its overtures to
the remaining countries were hobbled by the 1962
Sino-Indian war and its pariah status as the
"communist other", which it endured until the
early 1970s. China's move into South Asia gained
momentum following its conversion to a market
economy in the 1980s, as its coffers swelled with
trade and investment dollars. This economic
strength opened the path to South Asia, beyond its
longtime ally, Pakistan. China skillfully deployed
economic incentives to draw Bangladesh, Nepal,
Pakistan and Sri Lanka into its strategic
orbit.

For China, Bangladesh is
a doorway to India's turbulent northeastern
region, including the Indian state of Arunachal
Pradesh, to which China lays territorial claims.
Although China has backed off its claim to Sikkim,
a tiny kingdom that was incorporated into the
Indian Union in 1975, its claim to Arunachal
Pradesh remains unchanged even after the new-found
bonhomie between Beijing and Delhi.

One
issue of tension in South Asia concerns a conflict
between India and Bangladesh over another
northeastern state, Assam, where Indian leaders
claim some 20 million Bangladeshis have moved.
Bangladesh denies such claims. It is certain,
however, that Assam has a significant Muslim
minority that currently accounts for 30% of its
population. Nevertheless, Indian officials,
especially L K Advani, leader of the Bhartiya
Janta Party (BJP), which promotes Hindutva, a
version of hyper Hindu nationalism, fear that
Assam will become India's second Muslim-majority
state, after the state of Jammu and Kashmir. [9]
Above all, China prizes Bangladesh for its immense
natural gas reserves of 60 trillion cubic feet
(TCF), which rival those of Indonesia.
Bangladesh's geographic proximity to Myanmar makes
these reserves accessible to China through
pipelines. Also, Dhaka has granted China
exploration rights for developing natural gas
fields of its own [10], but large-scale
development of gas fields will wait until the
question of pipeline is settled.

In the
meanwhile, Bangladesh has opened to Chinese
exploration "one of the world's largest reserves
of best quality bituminous coal", which is
ash-free and has little sulfur content. [11]
Khalida Zia, Bangladesh's prime minister, during
her August 17-21 visit to China, further agreed to
Beijing's investment in developing her country's
natural gas fields, targeting that source of cheap
energy for manufacture of industrial and consumer
goods for reexport to China. China will also
assist Bangladesh in nuclear power production.
[12] By contrast, India's access to Myanmar's gas
reserves hinges on Dhaka's willingness to allow
Delhi a passage for laying a gas pipeline.

Oil explorationSino-Bangladesh
economic relations are not, however, without
friction. The major irritant is the textile
industry that accounts for 77% of Bangladesh's
annual exports, which are valued at close to $4.6
billion. [13] About 1.8 million Bangladeshis are
employed in this industry. With the dissolution of
the Multifiber Agreement on January 1, 2005, which
ended textile export quota for countries such as
Bangladesh, and China's entry into the World Trade
Organization (WTO), Dhaka's garment industry will
now have to compete with the world's textile giant
- China.

Beijing is, however, calming such
competitive tensions by outsourcing textile jobs
to Dhaka that have the comparative advantage of
labor that is half the cost of China's. In
addition, Prime Minister Wen, during his visit to
Dhaka last April, pledged to consider zero tariffs
on Bangladeshi exports to help bridge Dhaka's
yawning trade gap. More importantly, it is the
strategic relationship between the two that
overrides their non-strategic concerns. [14]
Bangladesh's Prime Minister Khalida Zia, during
her visit to Beijing on December 23-27, 2002,
signed the "Defense Cooperation Agreement", which
was further reinforced by Wen's most recent visit
to Dhaka.

Nepal's strategic location
between China and India makes it important.
Nepal's borders meet China's restive western
province of Tibet on the one hand, and Indian
states in which Naxalites [15] are active on the
other. Nepal's Maoist insurgents, who control a
vast swath of the countryside, have cross-border
links with India's Naxalites, whose activities in
many rural areas are the bane of the Indian
government. [16]

Nepalese Maoists and
Indian Naxalites share a Maoist belief in the
"village" as the pivot of revolution. It is widely
believed in India that both Nepalese and Indian
Maoists are sympathetic to China. Beijing,
however, denies links with either and whatever
sympathies Mao-era revolutionaries may have had
for the Naxalites, their program would seem to
have little resonance among contemporary Chinese
leaders. What is clear is that China and India vie
for Katmandu's favor to advance their respective
strategic goals. Since the replacement of Nepal's
democratic government with an absolute monarchy in
February of this year, India has cold-shouldered
Nepal's King Gyanendra, while China has embraced
him by describing the so-called royal coup as
Nepal's "internal matter". [17] In return, China
wants the Nepalese monarch to stay clear of any
foreign (Indian or the US) influence that could
make trouble in Tibet. To strengthen the political
status quo in Tibet, China is integrating Nepal
into the Tibetan economy, laying a highway that
will connect the two.

In the same way,
Beijing cherishes friendly relations with Sri
Lanka, which occupies a strategically important
heft of the Indian Ocean stretching to Southeast
Asia from the Middle East. After September 11, the
US sought access to Sri Lankan ports, airfields
and air space for its armed forces under the
Acquisition and Cross Servicing Agreement (ACSA).
The ACSA is the first such agreement between Sri
Lanka and a Western power since its independence
in 1948. (Though in the early 1980s, Colombo
allowed a radio transmitter on its territory to
beam Voice of America (VOA) broadcasts into China,
Myanmar and North Korea.)

Both China and
India would prefer Sri Lanka to stay out of
Western alliances, as they jostle for advantage
with Colombo. Sri Lanka's prolonged ethnic
conflict between its Sinhalese majority and the
Tamil minority has, however, strained its
relations with Delhi. India, with a Tamil-majority
state of its own, treads cautiously in mediating
the conflict, which makes it suspect with Colombo.
Tamils are not just India's "co-ethnics" but
"co-religionists" as well. As Hindus resisting the
domination of the Buddhist Sinhalese majority, the
cause of Sri Lankan Tamils resonates with the
Hindu majority in India.

This groundswell
of support influences India's policies towards the
Tamil-Sinhalese conflict. In May 1991, a Tamil
suicide bomber assassinated Rajiv Gandhi, a former
prime minister of India, for sending in 20,000
Indian troops to keep peace in Sri Lanka. Although
India was outraged by the assassination, its
official policy continues to seek justice for the
Tamil minority. China, however, with no such
concerns to balance, boldly vouches for Sri
Lanka's territorial integrity with little regard
for the national aspirations of the Tamil
minority.

Of all these nations, Pakistan's
strategic significance has long been preeminent
for China. Although smaller, Pakistan rivals India
in possession of nuclear weapons. It has long
denied India access to Western and Central Asian
nations, while at the same time literally paving
the highway of Karakoram for Beijing's direct
access to Eurasia. Above all, it has tied down
500,000 to 700,000 Indian troops in the Kashmir
Valley for the past 15 years, thereby indirectly
easing India's challenge to China's defenses on
their disputed border. Although both countries
agreed to the status quo on the border, their
troop deployment along it remains unaltered.

More importantly, Pakistan emboldens the
region's smaller economies to stand up to India
and seek Chinese patronage, which hurts India's
stature in the region. Although India is a
potential regional economic powerhouse, its
economic clout is far from matching China's.
Moreover, India is encumbered by border disputes
with almost every neighboring nation, which make
its neighbors more receptive to Beijing's economic
and strategic outreach.

China's
diplomatic triumphBesides strategic gains,
China has benefited diplomatically from its
growing influence with Bangladesh, Nepal, Pakistan
and Sri Lanka. Today, all of these nations affirm
the "one-China" policy, stating that Taiwan is an
"inalienable" part of the People's Republic of
China (PRC). India also has affirmed a "One-China"
policy but with a difference: while declaring
Tibet an integral part of China, it continues to
host the Dalai Lama. By contrast, all India's
neighbors shun the Dalai Lama while proclaiming
that Tibet is an integral part of China.

With China eager to join the South Asia
Association for Regional Cooperation (SAARC),
which currently represents the seven nations of
Bangladesh, Bhutan, India, Maldives, Nepal,
Pakistan and Sri Lanka, all six of India's
partners call for Beijing's entry into the SAARC -
to the palpable annoyance of Delhi. Thus, at a
time when China is making successful overtures to
ASEAN and throughout the South China Sea, it is
also extending its diplomatic and economic reach
toward South Asia, SAARC and the Indian Ocean.
[18]

India, as the resident power of South
Asia, considers the region its "near abroad," and
does not want Beijing to intrude on to its turf.
What unnerves India most is China's eye on South
Asia's biggest prize: the Indian Ocean. While
India would like to prevent China's advance into
its sphere of influence, it lacks the regional or
international clout, diplomatically, militarily or
economically to stem Beijing's march on South Asia
or the Indian Ocean.

China, however, has
sought to calm Delhi. Wen's four-day visit to
India on April 9-12 attests to growing efforts to
woo Delhi. China's major goal is to keep India
from forging military and strategic alliances with
the US that might undermine Beijing's goal of
reunification of Taiwan. Well aware of India's
historic concerns for its territorial integrity,
China deftly plays on India's nationalist
instincts and its visceral aversion to domination
by foreign powers. China's deft diplomacy is
facilitated by the current UPA (United Progressive
Alliance) government of India that rests on a
liberal-left coalition, many of whose members are
more suspicious of Western powers than of Beijing.

Beijing's overtures to Delhi are
strengthened by its failed effort to wean Tokyo
away from the US orbit and by growing China-Japan
tensions over territorial and historical issues.
Tokyo's stand on Taiwan, its decision to welcome
the US 1st Military Corps to Japan with important
implications for aggressively redefining the
US-Japan Security Treaty, and its view of Beijing
as a threat to Japan's national security, all
further distance the two. Against this background,
Wen's ability to convince Delhi to agree to form
the "India-China Strategic and Cooperative
Partnership for Peace and Prosperity" is
significant. The partnership has been touted in
Beijing as "the most significant achievement" of
Wen's four-nation tour (April 5-12), which took
him to Bangladesh, India, Pakistan and Sri Lanka.
[19]

Seeing new possibilities for a
breakthrough in its relations with India, Beijing
recently made a number of bold concessions as a
means to improve relations. Not only did China
accept the long-disputed territory of Sikkim as
part of the Indian Union, Wen even presented
Indian Prime Minister Man Mohan Singh with
cartographic evidence of his government's changed
stance: an official map that shows Sikkim in
India. In response, Delhi backed off its long-held
stand on Tibet, accepting it as an integral part
of the PRC. For its part, Delhi agreed to accept
the status quo in their border dispute until a
mutually satisfying resolution is found. China
wants to keep Aksai Chin, an area of 35,000 square
miles in Ladakh, Kashmir, which it seized from
India in 1962 while India wants to reclaim Aksai
Chin through negotiations. Aksai Chin offers
strategic access to China's restive western region
of Xinjiang, which makes it difficult for China to
let go of it.

Significantly, China agreed
to support India's bid for a United Nations
Security Council seat, albeit without specifying
whether it would endorse the Indian call for veto
power. This stands in sharp contrast to China's
leading role in blocking Japan's effort to obtain
a Security Council seat. China has also softened
its longstanding commitment to Pakistan on
Kashmir, perhaps in part because of the reported
infiltration of Muslim fighters from Kashmir into
the Chinese Muslim-majority autonomous region of
Xinjiang.

China appears to be prepared to
make these concessions to Delhi in order to forge
a "strategic partnership". For its part, India is
interested not only in defusing tensions with
China. With China poised to overtake the US as
India's largest trade partner, India is also
seeking to boost bilateral trade and ensure energy
security. India's giant appetite for energy
resources will soon rank it as the world's third
largest consumer of fossil fuels after the US and
China. Delhi hopes its strategic partnership with
Beijing will facilitate its energy drive.

However, the quest for energy is marked by
both competition and cooperation between Beijing
and Delhi. In South Asia, it is the competition
that dominates. India is competing with China to
woo energy-rich nations such as Bangladesh and
Myanmar that are politically closer to China. Thus
far, Delhi has been blocked in attempts to build a
pipeline to India from Myanmar, which would run
through Bangladesh. The fact that Myanmar remains
within the Chinese sphere of influence, makes it
difficult to move ahead with the plan. [20]

China, on the other hand, is building a
1,250-kilometer pipeline from gas fields in
Myanmar to its Yunnan province. China is also
building a deep-sea port at Gwadar, Pakistan,
along the Arabian Sea coast, which will help
diversify its energy shipments to Central Asia
from the Middle East. [21] For its part, India is
building Chahbahar port in Iran to gain access to
oil and gas reserves in central Asia through
Afghanistan. Elsewhere, India and China are
cooperating in energy development. For example,
they have agreed to invest to develop Iran's giant
oilfield of Yadavaran. Similar joint ventures
between Beijing and Delhi have been made in oil
and gas development in the Sudan.

While
strengthening ties with India, China faces the
challenge of keeping Pakistan on its side.
Islamabad has a long history of military alliances
with the US from CENTO (Central Treaty
Organization) and SEATO (Southeast Asia Treaty
Organization) in the past to its present status as
the major non-NATO US ally in the region and a
nation whose importance to the US grew with the
war in Afghanistan. Unlike India, Pakistan always
has been malleable to US influence. Wen, however,
drew Pakistan into a "Treaty of Friendship,
Cooperation and Good Neighborly Relations [22]",
which binds both signatories to desist from
joining "any alliance or bloc which infringes upon
the sovereignty, security and territorial
integrity of the other side". [23] President
General Pervez Musharraf, Pakistan's military
leader, has attempted to keep the contents of the
treaty under wraps by blocking the release of its
full text, despite the fact that China's People's
Daily published it. Nevertheless it is obvious
which of the two will have to avoid unwanted
alliances, and whose interests of "sovereignty,
security and territorial integrity" will be
served.

ConclusionChina has
invested in South Asia's smaller economies of
Bangladesh, Nepal, Pakistan and Sri Lanka to gain
a strategic foothold and create a diplomatic
profile in the region. This effort has transformed
the region from India's "near abroad" into China's
own backyard. India's economic power and military
might in the region are counterbalanced by a
growing Chinese presence. China has, for the most
part, used its strengthened position in the region
to make peace with Delhi in such longstanding
conflicts as border disputes, and it has joined
India in joint energy development projects,
despite the latter's strategic partnership with
the US. China's gains in reaching accommodation in
both South Asia and Southeast Asia stand in sharp
contrast to the deepening conflicts in China-Japan
relations.

Notes[1]
China's current trade with India ($13.6 billion),
Pakistan ($3.06 billion), Bangladesh ($1.14
billion), Sri Lanka ($350 million), and Nepal
($200 million) is rapidly growing. Although
reliable trade figures are not known for the
remaining two South Asian states of Bhutan and
Maldives, the total volume of bilateral trade
between China and South Asia is set to reach $20
billion a year. See "Boost All-weather Partnership
between China, Pakistan." People's Daily, April 5,
2005. Habib, Haroon (2005). "Bangladesh, China
Sign Nine Agreements." The Hindu, April 9, 2005.

[15]
"Naxalism" is a village-based peasant movement
that is fast spreading in southern and
northeastern states of India, which include Andra
Pradesh, Madhya Pradesh, Uttar Pradesh, Bihar,
Jarkhand, Maharashtra, Orissa, and Tamil Nadu. The
Naxalite movement adheres to Marxist and Maoist
ideologies, which are believed to bind it with
Maoists in Nepal, also.

[16] "The
Bothersome Little People Next Door". The
Economist, November 4, 2004. The Economist
estimates that at least some Naxalite activity can
be discerned in as much as 40% of India's 593
districts.

[17] The Chinese Foreign
Ministry's spokesman Kong Quan called King
Gyanendra's dismissal of the Nepalese government
"an internal matter of Nepal." see "China Hopes
Nepal to Realize Social Security." Xinhuanet,
February 1, 2005.